Will Budget relieve pains of demonetisation?

The Union Budget, to be presented on February 1, 2017, just before the high-stakes Uttar Pradesh Assembly polls, is expected to feature a slew of sops for the aam aadmi. However, with demonetisation unleashing hardships on the common man, the BJP government may find it difficult to appease the aam aadmi.

While daily-wage earners and farmers have been hit the hardest, a large chunk of the migrant labour force has returned home due to the severe cash crunch. There is a feeling that the government might try to compensate the people, but to what extent? The government will also try to plough back some windfalls, if cash reserves are at their optimum levels.

Income tax rates may see some changes. But that would depend on factors such as the amount of black money mopped up, a broad agreement, if not consensus over GST, the quantum of digitisation achieved, and the potential tax net widened.

If the targeted amount of cash is not recovered, we may see the government going after investments in gold and real estate, including benami investments, something that the prime minister has already hinted.

Meanwhile, Union finance minister Arun Jaitley has already hinted at sops for digital transactions. This will be in addition to discounts ranging from 0.75 per cent to 10 per cent on digital payments announced earlier. There are some ideas of preferential tax rates, but we do not have the details yet.

Pradhan Mantri Garib Kalyan Yojana was perhaps the result of a government plan to substantially compensate the poor for supporting PM Modi's note ban drive. While this may be a coercive and unconventional method, it seems to have the potential to emerge as a source of funding for social spends.

The government will have some extra cash before the Budget, an estimated Rs 70,000-Rs 75,000 crore under Pradhan Mantri Garib Kalyan Yojana, and Rs 15,000 crore from the Income Declaration Scheme; anything that the I-T uncovers besides the above will add to this figure.

It seems the new year will see a lot of frayed nerves due to the cash ban. The government will surely have to offer something substantial in terms of relief.

Also read: Old man who broke down in ATM queue shows the face of demonetisation

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